SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Act of 1934 for Quarterly period ended
June 30, 1996
( ) Transition report pursuant to Section 13 or 15(d) of
the Securities Act of 1934 for the transition period
from ______ to ____________.
No. 0-24114
(Commission File Number)
BCB FINANCIAL SERVICES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 232444807
(State of Incorporation) (IRS Employer ID Number)
400 WASHINGTON STREET, READING, PA 19603
(Address of Principal Executive Offices) (Zip Code)
(610) 376-5933
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of Shares Outstanding as of July 31, 1996
COMMON STOCK ($2.50 Par Value) 1,724,830
(Title of Class) (Outstanding Shares)
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
FORM 10-QSB
For the Quarter Ended June 30, 1996
Contents
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) as
of June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income
(Unaudited) for the Six and Three-Month
Periods ended June 30, 1996 and 1995 2
Consolidated Statement of Stockholders' Equity
(Unaudited) for the Six-Month Period ended
June 30, 1996 3
Consolidated Statements of Cash Flows
(Unaudited) for the Six-Month Period
Ended June 30, 1996 4&5
Notes to Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
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<CAPTION>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS June 30, December 31,
1996 1995
<S> <C> <C>
Cash and due from banks $ 12,704,898 $ 7,656,846
Interest-bearing deposits with banks 6,770,765 10,043,324
Federal funds sold 1,324,000 3,045,000
Securities available for sale 25,347,022 20,359,157
Securities held to maturity, fair value June 30, 1996 $24,288,055;
December 31, 1995 $ 9,366,552 24,627,339 9,207,069
Loans receivable, net of allowance for loan losses June 30, 1996
$1,919,876; December 31, 1995 $1,674,057 170,742,230 146,290,946
Mortgages held for sale 477,307 452,900
Due from mortgage investors 1,600,670 3,204,383
Bank premises and equipment, net 3,365,325 3,494,618
Accrued interest receivable 1,602,296 1,226,026
Other real estate owned 1,419,201 1,315,532
Prepaid expenses and other assets 390,962 168,752
Deferred income taxes 482,145 208,712
TOTAL ASSETS $250,854,160 $206,673,265
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 27,657,959 $ 18,421,557
Demand, interest bearing 75,637,876 48,024,548
Savings 10,013,406 9,418,076
Time, $100,000 and over 10,839,995 8,377,643
Time, other 100,560,544 95,696,046
TOTAL DEPOSITS 224,709,780 179,937,870
Accrued interest payable 869,519 844,459
Other liabilities 2,726,954 1,466,396
Federal Home Loan Bank borrowings 4,000,000 6,000,000
TOTAL LIABILITIES 232,306,253 188,248,725
Redeemable common stock, issued and outstanding December 31, 1995
12,539 shares - 129,969
Stockholders' equity:
Common stock, par value $2.50 per share;
authorized 3,000,000 shares; issued and outstanding June 30, 1996
1,724,420 shares; December 31, 1995 1,710,389 shares 4,311,050 4,275,973
Surplus 10,736,695 10,628,354
Retained earnings 3,805,570 3,233,574
Net unrealized appreciation (depreciation) on securities available
for sale, net of taxes (305,408) 156,670
TOTAL STOCKHOLDERS' EQUITY 18,547,907 18,294,571
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $250,854,160 $206,673,265
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the 6 Months Ended For the 3 Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income:
Loan Receivable, including fees $6,497,880 $5,342,720 $3,368,673 $2,754,350
Interest and dividends on investment securities:
U.S. Treasury 138,313 199,567 68,431 99,361
U.S. Government agencies and corporations 458,949 161,103 311,637 92,182
State and political subdivisions, tax exempt 511,255 124,746 306,311 67,526
Dividends 37,913 37,577 23,497 18,632
Interest-bearing deposits with banks 288,294 181,878 79,120 138,531
Interest on federal funds sold 84,857 23,170 21,760 11,228
Total interest income 8,017,461 6,070,761 4,179,429 3,181,810
Interest expense:
Interest on deposits 4,201,175 2,875,232 2,141,071 1,569,716
Interest on borrowed funds 139,204 268,794 67,605 100,929
Total interest expense 4,340,379 3,144,026 2,208,676 1,670,645
Net interest income 3,677,082 2,926,735 1,970,753 1,511,165
Provision for loan losses 325,000 162,500 245,000 62,500
Net interest income after provision
for loan losses 3,352,082 2,764,235 1,725,753 1,448,665
Other income:
Customer service fees 311,903 210,163 169,521 111,910
Mortgage banking activities 259,268 199,182 144,627 121,497
Net realized loss on sale of securities (682) (24,020) -- (24,020)
Other 9,615 3,817 2,260 1,272
Total other income 580,104 386,142 316,408 210,659
Other expenses:
Salaries and wages 987,708 951,410 489,654 511,646
Employee benefits 265,591 237,146 141,269 124,112
Occupancy 274,304 214,758 135,584 121,404
Equipment depreciation and maintenance 204,891 197,529 97,718 105,529
Other operating expenses 1,239,710 981,978 668,620 489,509
Total other expenses 2,972,204 2,582,821 1,532,845 1,352,200
Income before income taxes 959,982 567,556 509,316 307,124
Federal income taxes 181,051 181,378 85,542 95,372
Net Income $ 778,931 $ 386,178 $ 423,774 $ 211,752
Earnings per common and common equivalent share $ 0.45 $ 0.22 $ 0.25 $ 0.12
Weighted average common and common equivalent
shares outstanding 1,739,149 1,734,737 1,740,532 1,726,772
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996 (Unaudited)
Net unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Available for
Stock Surplus Earnings Sale Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $4,275,973 $10,628,354 $3,233,574 $ 156,670 $18,294,571
Issuance of common stock upon
exercise of stock options 3,730 10,682 --- --- 14,412
Net change in unrealized depreciation on
securities available for sale, net of taxes --- --- --- (462,078) (462,078)
Transfer 12,539 shares of redeemable
common stock upon expiration
of statute of limitations 31,347 98,624 --- --- 129,971
Cash dividends --- --- (206,935) --- (206,935)
Payment of discount on DRIP --- (965) --- --- (965)
Net income --- --- 778,931 --- 778,931
Balance, June 30, 1996 $4,311,050 $10,736,695 $3,805,570 ($305,408) $18,547,907
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 778,931 $ 386,178
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan and other real estate losses 362,613 162,500
Provision for depreciation 184,598 162,197
Loss on sale of bank equipment --- 24,680
Net realized loss on sale of securities 682 24,020
Net loss on sale of loans 8,289 ---
Net amortization of security premiums and discounts (30,040) (26,646)
Change in assets and liabilities:
(Increase) decrease in:
Due from mortgage investors 1,603,713 (1,993,957)
Accrued interest receivable (376,270) (149,875)
Prepaid expenses and other assets (222,210) (146,312)
Deferred income taxes (35,393) 48,318
Increase (decrease) in:
Accrued interest payable 25,060 115,958
Other liabilities 1,243,238 355,636
Net cash provided by (used in) operating
activities 3,543,211 (1,037,303)
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of and principal repayments
on available for sale securities 106,846 440,952
Proceeds from sales of securities available for sale 2,882,065 1,502,786
Proceeds from maturities of securities held to maturity 1,165,000 650,000
Purchases of securities available for sale (8,668,677) (2,123,854)
Purchases of securities held to maturity (16,564,129) (2,087,614)
(Increase) decrease in interest-bearing deposits with banks 3,272,559 (17,635,932)
Federal funds sold, net 1,721,000 ---
Loans made to customers, net of principal collected (24,968,238) (4,561,908)
Proceeds for sales of other real estate owned 17,976 132,328
Purchases of bank premises and equipment (55,305) (1,504,054)
Net cash used in investing activities (41,090,903) (25,187,296)
</TABLE>
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<TABLE>
<CAPTION>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $44,771,910 $36,906,725
Principal payments of Federal Home Loan Bank borrowings (2,000,000) (5,000,000)
Proceeds from exercise of stock options 14,412 15,899
Payment of 5% discount - DRIP (965) ---
Cash dividends (189,613) (137,507)
Net cash provided by financing activities 42,595,744 31,785,117
Increase in cash and due from banks 5,048,052 5,560,518
Cash and due from banks:
Beginning 7,656,846 5,318,720
Ending $12,704,898 $10,879,238
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 4,315,319 $ 2,860,203
Income taxes $ 320,000 $ 163,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Other Real Estate acquired in
settlement of loans $ 159,782 $ 864,365
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
BCB FINANCIAL SERVICES CORPORATION
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERKS COUNTY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
NOTE A. BASIS OF PRESENTATION
The financial statements include the accounts of the BCB
Financial Services Corporation and its wholly-owned
subsidiary, Berks County Bank. All significant intercompany
accounts and transactions have been eliminated. The
accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments considered necessary
for fair presentation have been included. Operating results
of the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected
for the year ending December 31, 1996.
NOTE B. EARNINGS PER SHARE
Primary and fully diluted earnings per share are computed
based on the weighted average number of common shares
outstanding during the period. Common share equivalents
included in the computations represent shares issuable upon
the assumed exercise of outstanding stock option and grants
that have an exercise price less than market price. These
common stock equivalents had a dilutive effect for the six
months ended June 30, 1996 and 1995. The number of common
shares outstanding was increased by the number of shares
issuable under the common stock options and grants and was
reduced by the number of common shares which are assumed to
have been repurchased with the proceeds from the exercise of
the options.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis is intended to assist
in understanding and evaluating the major changes in the
financial condition and earnings performance of BCB Financial
Services Corporation (the "Company") with a primary focus on an
analysis of operating results.
Total assets increased to $250,854,160 at June 30, 1996, an
increase of $44,180,895, or 21.38%, from $206,673,265 at
December 31, 1995. The increase in assets is due to higher
levels of loans, investment securities, and cash and due from
banks.
Loans, net of allowance for possible loan losses of
$1,919,876 at June 30, 1996 and $1,674,057 at December 31, 1995,
increased to $170,742,230 at June 30, 1996 from $146,290,946 at
December 31, 1995. The increase of $24,451,284, or 16.71%, was
primarily from an increase in commercial loans of $13,268,187 to
$77,488,152 at June 30, 1996 from $64,219,965 at December 31,
1995, and an increase in fixed rate residential mortgage loans of
$6,414,508 to $55,778,785 at June 30, 1996 from $49,364,277 at
December 31, 1995. Securities increased to $49,974,361 at
June 30, 1996 from $29,566,226 at December 31, 1995. The
increase of $20,408,135, or 69.03%, was due primarily to the
purchase of $13,182,394 in additional Municipal Securities and
$12,337,759 in U.S. Treasury and Government Agency Securities as
part of an arbitrage strategy by the bank to increase earnings.
Cash and due from banks, including interest-bearing deposits
with banks of $6,770,765 at June 30, 1996 and $10,043,324 at
December 31, 1995, increased to $19,475,663 at June 30, 1996,
from $17,700,170 at December 31, 1995. The $1,775,493 increase
was primarily the result of an increase in deposits, a major
source of funds, in excess of the uses of those funds, primarily
net new loans and securities purchases through June 30, 1996.
The Company's primary source of funds, deposits, aggregated
$224,709,780 at June 30, 1996, an increase of $44,771,910, or
24.88%, from $179,937,870 at December 31, 1995. The increase
came primarily in moneymarket savings accounts, classified within
"Demand, interest bearing," and checking accounts, classified as
"Demand, non-interest bearing," on the June 30, 1996 consolidated
balance sheet. Moneymarket savings accounts increased
$27,546,325, or 66.70%, from $41,297,520 at December 31, 1995 to
$68,843,845 at June 30, 1996. Non-interest bearing demand
(checking) increased $9,236,402, or 50.14%, from $18,421,557 at
December 31, 1995 to $27,657,959 at June 30, 1996. Time deposits
less than $100,000 increased $4,864,498 from $95,696,046 at
December 31, 1995 to $100,560,544 at June 30, 1996, an increase
of 5.08%. Time deposits of $100,000 and over increased
$2,462,352 from $8,377,643 at December 31, 1995 to $10,839,995 at
June 30, 1996. It is the bank's policy not to accept any
brokered deposits. The significant increase in most of the
deposit categories is attributable to (a) the added convenience
and new market locations provided by the Pottstown and Wyomissing
branches, both of which opened in the second quarter of 1995,
(b) deposit fee and rate pricing that was better for customers
than at the Company's local banking and thrift competition,
(c) continued aggressive account promotion and advertising in
response to the announced CoreStates acquisition of Meridian,
which occurred in the second quarter of 1996.
Stockholders' equity increased $253,336, or 1.38%, from
$18,294,571 at December 31, 1995 to $18,547,907 at June 30, 1996.
The increase was primarily attributable to the retention of
earnings, net of cash dividends declared of $206,935, an increase
in unrealized depreciation on securities available-for-sale from
$156,670 appreciation at December 31, 1995 to ($305,408) at
June 30, 1996, and the transfer of 12,539 shares, or $129,971,
from redeemable common stock back to stockholders' equity. The
transfer from redeemable common stock was due to the expiration
of the three-year statue of limitations applicable to the sale of
shares in unregistered transactions. FASB 115 requires banks to
record the net unrealized appreciation (depreciation) on
securities available-for-sale, net of taxes, as an adjustment to
stockholders' equity. Thus, when interest rates rise, equity is
reduced and when interest rates fall, equity is increased. The
fluctuations are temporary and stockholders' equity would only be
permanently reduced if the securities were sold at losses, or
reclassified as held-to-maturity during a period of time when the
market value is less than book value for these securities.
Retained earnings increased $571,996, or 17.69%, to
$3,805,570 at June 30, 1996 from $3,233,574 at December 31, 1995.
The increase was the result of the retention of $778,931 of
earnings less the declaration of cash dividends.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1996 was
$423,774, 100.13% more than the $211,752 reported for the same
period in 1995. For the six months ended June 30, 1996, net
income was $778,931, an increase of $392,753, or 101.70%, from
the $386,178 reported for the same period in 1995. These
increases were primarily due to an increase in net interest
income.
Net Interest Income
Net interest income is the difference between interest
income on assets and interest expense on liabilities. Net
interest income was $1,970,753 for the quarter ended June 30,
1996 versus $1,511,165 for the same period ended June 30, 1995.
For the six months ended June 30, 1996, net interest income was
$3,677,082 versus $2,926,735 for the same period ended June 30,
1995. Calculated on a tax-equivalent basis, net interest income
was $2,034,090 for the quarter ended June 30, 1996 versus
$1,534,108 for the quarter ended June 30, 1995 and $3,903,819 for
the six months ended June 30, 1996 versus $2,982,926 for the same
period ended June 30, 1995. The increase in net interest income
was primarily due to an increase in average interest-earning
assets.
Net interest margin decreased 4 basis points to 3.75% in the
second quarter of 1996 compared to 3.79% in the second quarter of
1995, calculated on a tax-equivalent basis. Net interest margin
decreased 13 basis points to 3.71% for the first six months of
1996 versus 3.84% for the first six months of 1995. Net interest
margin decreased due to a decrease in the yield on average
interest-earning assets and also because funds received from
interest-bearing deposits were not yet deployed into the higher
interest-earning assets. Net interest margin is the difference
between interest earned and interest paid, divided by average
total interest earning assets.
Average total interest-earning assets increased $55,707,000,
or 34.31%, to $218,073,000 for the second quarter of 1996
compared to $162,366,000 for the second quarter of 1995. The
yield on average interest-earning assets, calculated on a
tax-equivalent basis, decreased 9 basis points, or 1.14%, to
7.83% for the second quarter of 1996 compared to 7.92% for the
second quarter of 1995. Average total interest-earning assets
increased $54,802,000, or 34.95%, to $211,610,000 for the first
six months of 1996 compared to $156,808,000 for the first six
months of 1995. The yield on average interest-earning assets
decreased 5 basis points, or .64%, to 7.83% for the first six
months of 1996 compared to 7.88% for the first six months of
1995, calculated on a tax-equivalent basis. The primary reason
for the decline in yield was the lower average prime rate during
the first half of 1996 versus the first half of 1995.
Interest expense increased $538,031, or 32.20%, to
$2,208,676 for the second quarter of 1996 versus $1,670,645 for
the same period in 1995. This increase was due primarily to an
increase in the volume of average interest-bearing liabilities of
$56,294,000, or 36.96%, to $208,591,000 for the quarter ended
June 30, 1996 versus $152,297,000 for the quarter ended June 30,
1995. Interest expense increased $1,196,353, or 38.05%, to
$4,340,379 for the first six months of 1996 versus $3,144,026 for
the first six months of 1995. This increase was due primarily to
an increase in the volume of average interest-bearing liabilities
of $57,448,000, or 39.28%, to $203,710,000 for the first six
months of 1996 compared to $146,262,000 for the same period in
1995.
The average rate paid on average interest-bearing
liabilities decreased 14 basis points, or 3.18%, to 4.26% in the
second quarter of 1996 compared to 4.40% in the second quarter of
1995. The average rate paid on average interest-bearing
liabilities decreased 5 basis points, or 1.15%, to 4.28% for the
first six months of 1996 compared to 4.33% for the first six
months of 1995. The reason for the decrease in average rates
paid on average interest-bearing liabilities is that the deposit
growth of the Bank was primarily in non-interest bearing deposits
and low-rate money market savings accounts versus higher-rate
certificates of deposit. During the first six months of 1996,
low-rate demand and savings deposits increased $36,849,730 while
high-rate certificates of deposit increased only $7,326,850.
This was the result of a conscious decision by the Bank to offer
no-fee checking to consumers and businesses and to establish an
above market 4.00% interest rate (4.08% annual percentage yield)
on money market savings deposits in order to significantly
increase its market share of these lower-rate core deposits.
Typically certificates of deposit paid over 5.00%.
Provision for Loan Losses
The Company's provision for possible loan losses was
$245,000 in the second quarter of 1996 versus $62,500 in the
second quarter of 1995. For the first six months of 1996, the
Company's provision for possible loan losses was $325,000 versus
$162,500 for the same period in 1995. These increases reflect
the increase in the size of the bank's loan portfolio.
Other Income
Other income increased $105,749, or 50.20%, in the second
quarter of 1996 versus the second quarter of 1995, to $316,408
from $210,659. The increase was due primarily to an increase in
customer service fees, which are primarily derived from deposit
services, of $57,611, an increase in fees from mortgage banking
activities of $23,130, and a reduction of net realized losses on
the sale of securities of $24,020.
For the first six months of 1996, other income increased
$193,962, or 50.23%, to $580,104 from $386,142 for the same
period in 1995. The primary reasons for the increase were an
increase in customer service fees of $101,740, an increase in
fees from mortgage banking activities of $63,086, and a reduction
in net realized losses on the sale of securities of $23,338.
Other Expenses
Total other expenses increased $180,645, or 13.36%, during
the second quarter of 1996 versus the same period in 1995, to
$1,532,845 from $1,352,200. Total other expenses also increased
during the first six months of 1996 versus the first six months
of 1995, by $389,383, or 15.08%, to $2,972,204 from $2,582,821.
The increases in total other expenses reflect the growth of the
bank, and compares favorably with the 33.72% increase in total
assets, from $187,595,559 at June 30, 1995 to $250,854,160 at
June 30, 1996.
Salaries, wages and employee benefits declined slightly, by
$4,835, or 0.76%, from $635,758 for the three months ended
June 30, 1995 to $630,923 for the same period in 1996. For the
first six months of 1996, salaries, wages and benefits increased
$64,743, or 5.45%, to $1,253,299 versus $1,188,556 for the same
period in 1995.
Occupancy expense increased $14,180, or 11.68%, to $135,584
for the three months ended June 30, 1996 versus $121,404 for the
three months ended June 30, 1995. For the first six months of
1996, occupancy expense was $274,304 versus $214,758 for the same
period in 1995, an increase of $59,546, or 27.73%. These
increases reflect step-up rates in lease contracts, due to
inflation escalators, and to building, lease, and other occupancy
expenses related to the operation of the new Pottstown and
Wyomissing offices for the first and second quarters of 1996
versus only the second quarter of 1995.
Equipment depreciation and maintenance expenses decreased
$7,811, or 7.40%, to $97,718 for the second quarter of 1996
versus $105,529 for the second quarter of 1995. For the first
six months of 1996, equipment depreciation and maintenance
expenses increased $7,362, or 3.73%, to $204,891 from $197,529
for the same period in 1995.
Other operating expenses increased in the second quarter of
1996 versus the second quarter of 1995, to $668,620 from
$489,509, an increase of $179,111, or 36.59%. $82,093 of the
increase was in advertising. Significant changes in the second
quarter of 1996 compared to the second quarter of 1995 occurred
in FDIC insurance premium expenses, other real estate owned
expenses, and "other" expenses. FDIC insurance premiums declined
$71,517. Other real estate owned expenses increased $95,101.
"Other" expenses increased $82,161. For the first six months of
1996, other operating expenses increased $257,732, or 26.25%, to
$1,239,710 versus $981,978 for the same period in 1995.
Significant changes for the first half of 1996 versus the first
half of 1995 include a $167,167 increase in advertising expenses,
a $143,035 decrease in FDIC insurance premiums, a $111,780
increase in other real estate owned expenses, a $43,267 increase
in EDP outsourcing and MAC fees, and a $35,271 increase in
"other" expenses.
The Company elected to increase its advertising expenses in
order to increase its market share in response to the CoreStates
acquisition of Meridian. For the first nine months of 1996, FDIC
insurance premiums were reduced to $1,500 for the Bank. This
premium rate is subject to legislative modification by Congress
and there is no guarantee that required FDIC insurance premiums
will not be significantly increased in the future. Other real
estate owned assets increased from $744,532 at June 30, 1995 to
$1,419,201 at June 30, 1996. Related expenses for maintenance,
repairs, and real estate taxes are customary until the Bank sells
the properties. EDP, MAC, and "other" expense increases were
attributable to the growth of the Company.
Provision for Income Taxes
The provision for income taxes was $85,542 for the second
quarter of 1996 versus $95,372 for the second quarter of 1995.
The provision for income taxes was $181,051 for the first six
months of 1996 versus $181,378 for the first six months of 1995.
For the first six months of 1996, the Company's effective tax
rate was 18.86% versus an effective tax rate of 31.96% for the
same period in 1995. The significant decrease in 1996's
effective tax rate from the statutory tax rate of 34% and 1995's
first six months effective tax rate was due to the significant
increase in bank-qualified municipal securities' interest income.
This increased $238,785, or 353.62%, during the second quarter of
1996 to $306,311 from $67,526 during the same period of 1995.
For the first half of 1996, bank-qualified municipal securities'
interest income increased $386,509, or 309.84%, to $511,255 from
$124,746 during the same period in 1995.
Asset Quality
Non-performing assets increased 35.89% to $3,890,334 as of
June 30, 1996 compared to $2,862,794 as of December 31, 1995.
The ratio of the allowance for possible loan losses to
non-performing assets was 49.35% at June 30, 1996 compared to
58.48% at December 31, 1995. The bank elected to charge-off
approximately $162,000 of previously non-performing assets during
the first six months of 1996 versus approximately $194,000 in the
first six months of 1995. Non-performing assets are comprised of
non-accrual loans and other real estate owned (assets acquired in
foreclosures) and restructured loans. It is the Company's policy
to classify a loan, other than a loan insured for credit loss, as
non-accrual within ten days after the month end in which the loan
becomes 90 days past due for either principal or interest. At
June 30, 1996, non-performing assets were 1.55% of total assets.
At December 31, 1995, non-performing assets were 1.39% of total
assets.
The balance in the allowance for possible loan losses was
$1,919,876, or 1.11% of total loans at June 30, 1996 compared to
$1,674,057, or 1.13% of total loans at December 31, 1995.
As a financial institution which assumes lending and credit
risks as a principal element of its business, the Company
anticipates that credit losses will be experienced in the normal
course of business. Accordingly, management of the Company makes
a quarterly determination as to an appropriate provision from
earnings necessary to maintain an allowance for loan losses that
is adequate for potential yet undetermined losses. The amount
charged against earnings is based upon several factors including,
at a minimum, each of the following:
* a continuing review of delinquent, classified and
non-accrual loans, large loans, and overall portfolio
quality. This continuous review assesses the risk
characteristics of both individual loans and the total
loan portfolio.
* regular examinations and reviews of the loan portfolio
by representatives of the regulatory authorities.
* analytical review of loan charge-off experience,
delinquency rate, and other relevant historical and
peer statistical ratios.
* management's judgement with respect to local and
general economic conditions and their impact on the
existing loan portfolio.
When it is determined that the prospects for recovery of the
principal of a loan have significantly diminished, the loan is
immediately charged against the allowance account, subsequent
recoveries, if any, are credited to the allowance account. In
addition, non-accrual and large delinquent loans are reviewed
monthly to determine potential losses.
Management believes the allowance for loan losses was
adequate to cover risks inherent in its loan portfolio at
June 30, 1996. However, there can be no assurance that the
Company will not have to increase its provision for loan losses
in the future as a result of changes in economic conditions or
for other reasons. Any such increase could adversely affect the
Company's results of operations.
The Company's policy is to carry other real estate owned
properties at their lower of cost or fair market value minus
estimated costs to sell. Fair value is determined from recent
appraisal reports. While the Company believes this is a prudent
and reasonable estimate of the properties' values, the
possibility remains that market conditions can change and that
actual sales prices might ultimately fall below recent appraised
values, or that future appraisals may be less than most current
ones. Should either of those events occur, the Company would
have to recognize further losses.
Liquidity and Capital Resources
Financial institutions must maintain liquidity to meet
day-to-day requirements of depositors and borrowers, take
advantage of market opportunities, and provide a cushion against
unforeseen needs. Liquidity needs can be met by either reducing
assets or increasing liabilities. Sources of asset liquidity are
provided by short-term investment securities, cash and amounts
due from banks, interest-bearing deposits with banks, and federal
funds sold. These assets totaled $23,211,269 at June 30, 1996
compared to $24,123,507 at December 31, 1995. This decrease was
due to an increase in loans and long-term investment securities.
Liability liquidity can be met by attracting deposits with
competitive rates, buying federal funds or utilizing the
facilities of the Federal Reserve System or the Federal Home Loan
Bank System. The Company utilizes a variety of these methods of
liability liquidity. At June 30, 1996, the Company had
approximately $80.9 million of unused lines of credit available
under informal arrangements with correspondent banks compared to
$70.4 million at December 31, 1995. These lines of credit enable
the Company to purchase funds for short-term needs at current
market rates.
Capital
Total stockholders' equity increased $253,336, or 1.38%, to
$18,547,907 at June 30, 1996 from $18,294,571 at December 31,
1995. The ratio of stockholders' equity to total assets
decreased to 7.39% at June 30, 1996 compared to 8.85% at
December 31, 1995. The increase in total stockholders' equity
was primarily the result of the increase in retained earnings of
$571,996. Retained earnings increased by the amount of the first
six months of earnings during 1996, less cash dividends declared
in the amount of $206,935 during the same period. Other
significant changes to total stockholders' equity were an
increase of $129,971 due to the transfer of 12,539 shares from
redeemable common stock, and the increase in unrealized
depreciation on securities available-for-sale during the period
from December 31, 1995 through June 30, 1996, as was previously
mentioned herein. The ratio of stockholders' equity to total
assets decreased was because the rate of growth in assets
exceeded the rate of growth in stockholders' equity during the
first half of 1996.
The Company's consolidated capital ratios at June 30, 1996
exceed all regulatory requirements. The Federal Reserve Board
requires a bank holding company, such as the Company, to maintain
a Tier 1 capital to risk-adjusted assets ratio of 4.00%, a total
capital to risk-adjusted assets ratio of 8.00% and a leverage
ratio of 3.00% plus a cushion of at least 100 to 200 basis
points. The Company's Tier 1 capital to risk-weighted assets
ratio was 11.72% at June 30, 1996 compared to 12.43% at
December 31, 1995. The Company's total capital to risk-weighted
assets ratio was 12.92% at June 30, 1996 compared to 13.58% at
December 31, 1995. The Company's leverage ratio was 8.42% at
June 30, 1996 versus 10.29% at December 31, 1995. The Company
was categorized as "well-capitalized" under applicable regulatory
guidelines as of June 30, 1996. Federal Reserve Board guidelines
define a "well-capitalized institution as having a Tier 1 capital
to risk-adjusted assets ratio of 6.00% or more, a total capital
to risk-adjusted assets ratio of 10.00% or more, and a leverage
ratio of 5.00% or more.
<PAGE>
PART II
Item 4. Submission of Matters to Vote of Security Holders
The 1996 Annual Meeting of Shareholders (the "Meeting") of
the Company was held on April 17, 1996. Notice of the Meeting
was mailed to shareholders on or about March 15, 1996.
The Meeting was held for the following purposes:
1. To elect three Class B directors to hold office for
three years from the date of election and until their
successors are elected and qualified (Matter No. 1);
2. To ratify the appointment by the Company's Board of
Directors of Beard & Company, Inc., as the Company's
independent auditors for the fiscal year ending
December 31, 1996 (Matter No. 2).
There was no solicitation in opposition to the nominees of
the Board of Directors for election to the Board of Directors.
All nominees of the Board of Directors were elected. The number
of votes cast for or against, as well as the number of
abstentions for each of the nominees for election to the Board of
Directors were as follows:
Abstentions and
Nominee For Against Broker Non-Votes
Lewis R. Frame, Jr. 1,294,045 211 1,220
Floyd S. Weber 1,294,045 1,321 110
Randall S. Weeber 1,292,608 1,321 1,547
Matter No. 2 was approved by shareholders at the Meeting.
The votes cast for this Matter were as follows:
Abstentions and
For Against Broker Non-Votes
1,288,844 2,991 3,641
<PAGE>
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits
11. Statement regarding computation of per share
earnings (is included in Note B to
Consolidated Financial Statements
(Unaudited)).
27. Financial Data Schedule.
(b) Reports on Form 8 - K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
August 9, 1996 BCB FINANCIAL SERVICES CORPORATION
(Registrant)
By/s/ Robert D. McHugh, Jr.
Robert D. McHugh, Jr.,
Senior Vice President and
Treasurer (Authorized Officer
and Principal Financial
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
11 Statement regarding computation of per share
earnings (is included in Note B to
Consolidated Financial Statements
(Unaudited)).
27 Financial Data Schedule.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,705
<INT-BEARING-DEPOSITS> 6,771
<FED-FUNDS-SOLD> 1,324
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,347
<INVESTMENTS-CARRYING> 24,627
<INVESTMENTS-MARKET> 24,288
<LOANS> 172,662
<ALLOWANCE> 1,920
<TOTAL-ASSETS> 250,854
<DEPOSITS> 224,710
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,596
<LONG-TERM> 4,000
0
0
<COMMON> 4,311
<OTHER-SE> 14,237
<TOTAL-LIABILITIES-AND-EQUITY> 250,854
<INTEREST-LOAN> 6,498
<INTEREST-INVEST> 1,146
<INTEREST-OTHER> 373
<INTEREST-TOTAL> 8,017
<INTEREST-DEPOSIT> 4,201
<INTEREST-EXPENSE> 4,340
<INTEREST-INCOME-NET> 3,677
<LOAN-LOSSES> 325
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 2,972
<INCOME-PRETAX> 960
<INCOME-PRE-EXTRAORDINARY> 779
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 779
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<YIELD-ACTUAL> 3.49
<LOANS-NON> 1,906
<LOANS-PAST> 116
<LOANS-TROUBLED> 83
<LOANS-PROBLEM> 856
<ALLOWANCE-OPEN> 1,674
<CHARGE-OFFS> 162
<RECOVERIES> 83
<ALLOWANCE-CLOSE> 1,920
<ALLOWANCE-DOMESTIC> 1,920
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
